Chapter 20: Constructive Fraud

The Basic Facts: Storage company's creditor sued bank and its subsidiary after it obtained a deed in lieu of foreclosure. The theories asserted included constructive fraud.

The Bottom Line:

"Plaintiffs' second claim alleges a conspiracy to commit constructive fraud.FN8 Constructive fraud is a breach of a legal or equitable duty which is deemed fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Cornwell v. Hodge, C.A. No. 44, 1986 WL 5890, at *3 (Tenn. Ct. App. May 23, 1986) (citing Bank of Blount County v. Dunn, 10 Tenn. App. 95 (1929)). Constructive frauds are acts, statements or omissions which operate as virtual frauds on individuals. Id. (citing Maxwell v. Land Developers, Inc., 485 S.W.2d 869 (Tenn. Ct. App. 1972)). They concern a breach of a legal or equitable duty, with or without fraudulent intent, and entail as an attribute of fraud, conduct which reasonably can be expected to influence the conduct of others. Id. (citing Parks v. Alexander, 608 S.W.2d 881 (Tenn. Ct. App. 1980)).

FN8 Although Tennessee has not addressed this issue, some states have held that conspiracy to commit constructive fraud is a legal impossibility because one cannot conspire to commit a crime for which he does not have the intent to commit. See Witcher v. Reid, No. CH05-1974, 2006 WL 1494675, at *4 (Va. Cir. Ct. May 31, 2006); Juhl v. Airington, 936 S.W.2d 640, 644 (Tex. 1996); see also Unkel v. Liggett Group Inc., [172 F.R.D. 474 (M.D. Fla. 1997)]. Conspiracy requires an element of intent to form a common design between two or more people and accomplish, through concerted action, an unlawful act or lawful act by unlawful means. Constructive fraud, on the other hand, is essentially fraud without the element of intent. Cornwell v. Hodge, 1986 WL 5890, at *3 (Tenn. Ct. App. May 23, 1986). Finding Plaintiffs' claim deficient for other reasons, we need not make this determination."

221 S.W.3d at 39.

"Constructive fraud is essentially fraud without the element of intent. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud. Cornwell, 1986 WL 5890, at *3. The presence or absence of such an intent distinguishes actual fraud from constructive fraud. Id. Plaintiff's claim, however, is not one of constructive fraud, it is a claim of 'conspiracy to commit constructive fraud.' As explained earlier, intent is an essential element of a conspiracy claim, thus it is an essential element of this claim. Morgan, 165 F. Supp.2d at 720." Id. at 39-40.

After an accident, many injury victims and their families want more information on the accident and their legal rights. Consequently, many of them have found their way to these pages. While we are happy you are here, please understand Day on Torts: Leading Cases in Tennessee Tort Law was written to be a quick, invaluable reference for Tennessee tort lawyers. While the book provides the leading case for more than 300 tort law subjects and thousands of related case citations, it is not a substitute for personalized legal advice from a qualified lawyer.

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

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